MANAGUA, Nicaragua — Nicaragua’s apparel exports will fall 5 percent to $1.3 billion this year as the U.S.’s removal of the Tariff Preference Level triggers 5,000 job losses, forcing mills to restructure their operations, official said.
“We lost 5,000 jobs,” said Javier Chamorro, executive director of export lobby ProNicaragua, “though we haven’t seen any companies shut down.”
Chamorro said most job losses stem from downsizing trouser and jeans producers that are now forced to import expensive twill and denim fabric from the U.S. or Mexico instead of Pakistan and China.
Following last December’s expiration, Nicaragua failed to coax the U.S. Congress to renew the U.S. provision that ushered in an era of huge progress — prompting top firms like Wal-Mart Stores Inc. and Under Armour to source in Nicaragua. It accounted for 25 percent of textile exports.
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However, Chamorro said maquilas are quickly moving into other “more competitive” market niches such as polo shirts or outerwear. This, coupled with Nicaragua’s low labor costs (30 to 40 percent lower than Honduras or Guatemala), should help exports recover next year, he added.
Nicaragua’s proximity to the U.S. market, growing economy and stable political environment will also keep it competitive in the face of growing competition from Vietnam and the shifting sourcing landscape expected to emerge from the Trans-Pacific Partnership.
“The global industry can’t solely depend on one country or region, have all their eggs in one basket,” Chamorro said. “If you have an earthquake in Vietnam, its whole industry could disappear. They would lose a lot of market share.”
Nicaragua is also moving to streamline its manufacturing chain to meet U.S. brands’ near-sourcing needs and hopes to establish a technical training institute next year to boost sewing know-how.
Carlos Zuniga, assistant general manager of duty-free regime operator Corporación Zona Franca, said the nation is seeking $160 million in textile investments to gradually boost apparel exports to $2 billion in five years. Increasing output of polyester, spandex, twill and cotton among other technical fabrics is crucial for the industry’s survival. Apparel factories currently import 30 percent of these feedstocks to make some 400 million square meter equivalent for exports, mainly to the U.S.
To meet these needs, Nicaragua must install more than 300 million square meter equivalents of capacity, Zuniga said.
Already, Peru’s Hialpesa plans to open a large synthetics mill next year, following Pride Denim’s plans to re-start a woven’s site. Several other firms — notably New Holland Apparel, Techshoes and Hansae — also plan to increase output.
NHA plans intends to double revenues and output in three years, manufacturing manager Norberto Aquino said, adding that the Nike and Under Armour supplier is testing for Adidas. Clarks’ maker Brazil’s Techshoes also intends to build a new athletic shoe factory to double output to 5.5 million pairs by 2020, general manager Leandro Winter said. Meanwhile, Han Sae plans to build a fifth plant in coming months to boost production to over 70 million units amid brisk demand from Wal-Mart.
“We have a new project to Wal-Mart,” said technical assessor Jose Antonio Lopez. “They brought 40 million annual units for their new women’s camisole. Nicaragua may have lost the TPL but it is still growing.”
Apart from Wal-Mart, Hansae makes clothes for Gap’s Old Navy, The Children’s Place and Target.
Nicaragua will expand its 10-year maquila tax exemptions and cut electricity prices to around $18 cents a kilowatt from $21 cents a kilowatt now (the region’s highest), to help woo the crucial investments, Zuniga said.